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SOFIA, Dec. 17 (Reuters) – Bulgarian banks will need to accumulate more capital in 2023 to counter a build-up of systemic risks from low interest rates that are significantly boosting consumer borrowing, especially mortgages, said the central bank.

The National Bank of Bulgaria set the countercyclical capital buffer rate on Thursday evening at 1.5% from January 2023, against the 0.5% that lenders must set aside now, which is expected to rise to 1.0% from next October.

The cushion is intended to protect the banking system against potential losses resulting from a build-up of systemic risk during a period of excessive credit growth.

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“Home loans are growing at an accelerated pace, especially in the home loan segment,” the bank said in a statement.

“The increase aims to strengthen the resilience of the banking system in the event of pressure on profitability and the capital situation caused by a potential increase in non-performing loans and write-downs,” he said.

Bulgaria, which hopes to join the euro zone in 2024, has pegged its currency, the lev, to the euro. The country’s base interest rate has been set at zero since 2016.

The gross loan portfolio had grown 1.1% at the end of October on a monthly basis to 74.5 billion levs ($ 43.13 billion), according to central bank data.

Bulgarian banks, many of which are owned by European Union lenders, are generally well capitalized, and the increased buffer should not encourage any of the 18 companies to raise additional capital.

($ 1 = 1.7273 leva)

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Reporting by Tsvetelia Tsolova; Editing by Andrew Heavens

Our Standards: Thomson Reuters Trust Principles.

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